Monday, 8 May 2017

5 Financial Steps to Take in Your Twenties

By Miriam Caldwell
Updated June 14, 2015
Your twenties are the foundation for the rest of your financial life. Getting off to a good start in your twenties will make it easier for you to manage your finances and to achieve your financial dreams. You will not need to play catch up and you will be set up to go after the things you want whether it is starting a family, pursuing a career, buying a house or starting your own business. These five financial steps will prepare you for the future, while still letting you enjoy your twenties. They are simple, and will not drastically affect your current goals. You need to make sure you aren't making these common financial mistakes.

1  Start Saving for Retirement

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As soon as you start your first job, you should start putting money away for retirement. Your retirement money will begin working for you and you will eventually get to the point where it is earning more in interest than you are contributing each month. When this happens your savings will really start to grow. The sooner you start contributing, the sooner you will be able to do it. You do not want to worry about paying catch up on your retirement in later years. Start contributing to your 401(k) as soon as you are eligible. You should contribute enough to take full advantage of your employer’s match program.   You can gradually work up to contributing fifteen percent of your income as you get raises and you pay off your debt.

2  Get Out of Debt

This is a huge step and it is so important to work to get out of debt. If you are out of debt, except for your mortgage, by the time you are in your twenties, you will be in a better position to do the other things you want to with your life. When the time comes for you to purchase a home or to have children or to whatever big thing you want to with your life, you will not be held back by your debt. Set up your debt payment plan and work on getting out of debt today.

3  Save for a Down Payment on Your Home

You may be ready to buy your first home when you are in your twenties, or you may decide to wait until you are in your thirties. A lot of this depends on individual circumstances like your career path, your family situation and your level of comfort with buying a home. If you start saving your down payment for a home now, you will be ready to buy a house when the time is right in your life. Begin setting aside money each month to go toward your down payment on your home as soon as you are out of debt. You can determine the amount you want to save, and if you have a date you want to purchase the home by, you can determine how much you need to save each month to reach that goal.

4  Make Budgeting a Successful Habit

Budgeting is difficult, and even after you have been managing your money for several years, you can fall off the wagon and slip into bad spending habits again. The sooner you establish a habit of budgeting and saving money, the better off you will be. Take the time now to find a budgeting system that works for you and that will make it easier to keep budgeting in the future. When you get married, you will need to continue to budget as a couple. This can take a lot of work as you adjust to working together. However, it is the key to being financially successful in the future.

5  Set Up a Financial Plan

A long-term financial plan will give you purpose as you manage your money. It will help you set specific goals for retirement, your career and building wealth. It is good time to pursue your dreams. If you choose to have children, it will also help you plan to pay for college and cover other expenses. While it may seem premature to write a financial plan when you are in your twenties and you have not taken many life steps like getting married or starting a family, it will still help you with your overall financial situation. Additionally, it is important to realize that you can make changes to your financial plan as your life changes. You can add in paying for college once you have kids, and you will want to adjust it once you are married. This is the time to break free of the bad financials habits that may been passed down, and these steps will help you do it.

source - thebalance